China and the World of Business • China Business and the World

There could possibly be no plainer proof than this story that China’s bureaucrats have yet to figure out exactly what the phrase “market mechanism” means. Clearly, the Central Party School needs to be teaching a little less Marxism-Leninism-Maoism-Dengism-Jiangism and a bit more Adam Smith.

I’m sure to some mid-level bureaucrat over at the MII desperate to justify his job thought that 45 sounded like a much more responsible number of manufacturers than 65 for a scientifically socialist market economy like China. And maybe he’s right.

But why not wait and let the market decide? Let’s not forget, after all, that China is rapidly becoming the global center of handset manufacturing, and that consumers worldwide are driving the market to diversify. We are very early in the game in the handset manufacturing industry in China, and making arbitrary decisions about who should be allowed to continue in business and who should not.

What is worse, the article appears to imply that the choice will be made based on scale. What about the companies that are small and not producing a lot of phones, but have some great ideas, designs, and talent, and could in the future stomp the likes of Nokia?

And let’s toss one final factor into the mix. By artificially restricting the number of competitors in the market in China, the government is increasing the likelihood that future competitors are likely to come from elsewhere. India, perhaps?

This amounts to a thinly-disguised effort to subsidize the 45 remaining producers, the very kind of mollycoddling China joined the WTO to eliminate. You don’t create national champions that will become global powerhouses by limiting the competition, something Zhu Rongji and reformers in government understand. Shutting down 20 mobile phone manufacturers will not strengthen those remaining – it will weaken them.